Tariff war could hit Washington state apple sales to Mexico

Fri., June 1, 2018

In this March 22, 2018, file photo, Secretary of Commerce Wilbur Ross listens as President Donald Trump speaks before signing a Presidential Memorandum imposing tariffs and investment restrictions on China, in the Diplomatic Reception Room of the White House in Washington. (Evan Vucci / AP)

The Trump administration delivered a gut punch to America’s closest allies Thursday, imposing tariffs on steel and aluminum from Europe, Mexico and Canada in a move that drew immediate vows of retaliation.

The import duties threaten to drive up prices for American consumers and companies and are likely to heighten uncertainty for businesses and investors around the globe.

In Washington state, apple growers waited anxiously for details of what the retaliation would be from Mexico, their biggest foreign market, which said it would impose tariffs on U.S. apples. The state sells between 12 million and 15 million bushels a year to Mexico, worth about $215 million last year, Todd Fryhover, president of the Washington Apple Commission, said.

President Donald Trump had originally imposed the tariffs in March, saying a reliance on imported metals threatened national security. But he exempted Canada, Mexico and the European Union to buy time for negotiations – a reprieve set to expire at midnight Thursday.

Other countries, including Japan, America’s closest ally in Asia, are already paying the tariffs.

Washington is the state most dependent on foreign trade, and Republicans and Democrats in its congressional delegation have opposed the tariffs.

U.S. Rep. Cathy McMorris Rodgers, a high-ranking Republican in the House, said she was “greatly disappointed” by the announcement to go ahead with tariffs, and strongly opposes Trump’s decision.

“I am quite concerned about the retaliatory tariffs that would be placed on our products,” said McMorris Rodgers shortly after a public meeting in Pullman at which the tariff announcement came up.

Most authority for trade policy is vested in the president and the administration, but members of Congress “are looking right now at what our options are,” she said.

The administration says its goal is to improve American manufacturing and protect producers, McMorris Rodgers said. Congress and the public need to continue to make the case the goal needs to be setting up American manufacturers, producers and growers to innovate and sell to the world.

American farmers can lose their foreign markets very quickly and may take years to get them back, she said.

Sen. Maria Cantwell, D-Wash., said a trade war could cost American companies market share and shelf space which will be hard to regain. American apples make up half the total market in Mexico, she said.

“These tariffs put that opportunity in jeopardy along with putting other U.S. exports to Canada and the European Union at risk,” she said.

Sen. Patty Murray, D-Wash., called the tariffs reckless: “While we can and should recognize there is a problem with overcapacity and oversupply of steel and aluminum, Trump’s trade wars will hurt growers, the Washington economy and families across the country who could see the costs of everyday goods go up.”

Gov. Jay Inslee, a Democrat who is a frequent critic of Trump’s policies, blasted the decision as “erratic and unilateral,” saying it could undermine the state’s efforts to build up markets.

“The losers in these deals are Washington’s hard-working, job-creating manufacturers and growers and their customers,” Inslee said in an email.

The administration’s actions also drew fire from Europe, Canada and Mexico and promises to quickly retaliate against U.S. exports.

“This is protectionism, pure and simple,” said Jean-Claude Juncker, president of the European Commission.

The EU earlier threatened to counterpunch by targeting U.S. products, including Kentucky bourbon, blue jeans and motorcycles. David O’Sullivan, the EU’s ambassador in Washington, D.C., said the retaliation will probably be announced in late June.

Mexico complained that the tariffs will “distort international trade” and said it will penalize U.S. imports including pork, grapes, cheeses and flat steel as well as apples. Of the American apples sold in Mexico, most of those are from Washington, Fryhover said.

In Canada, Prime Minister Justin Trudeau said: “These tariffs are totally unacceptable.” Canada announced plans to slap tariffs on $12.8 billion worth of U.S. products, ranging from steel to yogurt and toilet paper.

“Canada is a secure supplier of aluminum and steel to the U.S. defense industry, putting aluminum in American planes and steel in American tanks,” Trudeau said. “That Canada could be considered a national security threat to the United States is inconceivable.”

Trump had campaigned for president on a promise to crack down on trading partners that he said exploited poorly negotiated trade agreements to run up big trade surpluses with the U.S.

The U.S. tariffs coincide with – and could complicate – the Trump administration’s separate fight over Beijing’s strong-arm tactics to overtake U.S. technological supremacy. Ross is leaving Friday for Beijing for talks aimed at preventing a trade war with China.

The world’s two biggest economies have threatened to impose tariffs on up to $200 billion worth of each other’s products.

The steel and aluminum tariffs could also complicate the administration’s efforts to renegotiate the North American Free Trade Agreement with Canada and Mexico, a pact that Trump has condemned as a job-killing “disaster.”

Trump offered the two U.S. neighbors a permanent exemption from the steel and aluminum tariffs if they agreed to U.S. demands on NAFTA. But the NAFTA talks stalled.

Ross said there was “no longer a very precise date when they may be concluded,” and that as a result, Canada and Mexico were added to the list of countries hit with tariffs.

Likewise, the Trump trade team sought to use the tariff threat to pressure Europe into reducing barriers to U.S. products. But the two sides could not reach an agreement.

The import duties will give a boost to American makers of steel and aluminum by making foreign metals more expensive. But companies in the U.S. that use imported steel will face higher costs.

And the tariffs will allow domestic steel and aluminum producers to raise prices, squeezing companies – from automakers to can producers – that buy those metals.

Prices started rising even before all the tariffs kicked in. Stripmatic Products, an auto parts supplier in Cleveland, has seen a 40 percent increase in the price of steel. The higher cost meant it lost out this year to a Chinese company on a contract to branch out into a new market: making food-processing equipment.

“We were basically eliminated from contention,” said Stripmatic president Bill Adler. He said the company needed four or five years to recover the last time the U.S. imposed tariffs on steel, in 2002.

Measured purely in dollars, the tariffs don’t amount to much in America’s $20 trillion economy. Speaking Thursday on CNBC, Ross called the tariffs “blips on the radar screen.”

But Oliver Rakau, an economist with Oxford Economics, warned that the tariffs could cause economic damage because “the specter of an escalation is likely to weigh on business sentiment and may derail the investment recovery.”

The Trump administration is turning to a little-used weapon in trade policy: Section 232 of the Trade Expansion Act of 1962. It empowers the president to restrict imports and impose unlimited tariffs if the Commerce Department sees a threat to national security.

Europe, Japan and other U.S. trading partners are contesting the U.S. tariffs at the World Trade Organization.

The WTO gives countries broad leeway to determine national security interests. But there was an unwritten agreement that WTO member countries would use the national-security justification sparingly to avoid abuses.

Now that Trump has broken the taboo, critics fear that other countries will impose sanctions.

Critics say the steel and aluminum tariffs would do little to address the real problem plaguing metals producers around the world: massive overproduction by China that has flooded world aluminum and steel markets. Canada, a staunch U.S. ally, is the largest supplier of steel and aluminum to the United States.

“The administration’s trade remedies should specifically target structural aluminum overcapacity in China, which is caused by rampant, illegal government subsidies,” said Heidi Brock, president of the Aluminum Association, which represents aluminum producers, fabricators, recyclers and suppliers.

Ross said negotiations with Mexico, Canada and the EU can continue even once the tariffs are in place.

But Philip Levy, senior fellow at the Chicago Council on Global Affairs and a former White House trade adviser, said: “I don’t think this is prelude to a series of deals. If anything, this kills the possibility of deals.”